Fintech industry “firing on all cylinders” despite VC investment in UK fintechs down 39%

The fintech industry is “back firing on all cylinders” despite venture capital investment levels in UK fintech taking a hammering in the first half of the year, dropping by more than a third on the previous year.

Data from Innovate Finance, the industry trade body, reveals VC investment totalled $1.84bn in the first six months of 2020 across 167 deals in UK fintech.

This is a 39 per cent drop in capital compared to the first half of 2019 when $3bn was invested in 263 startups.

But the figures for the first six months represent an increase from the second half of 2019, when funding reached $1.5bn.

According to the figures, over half the funding went to five companies- Revolut,Checkout.com,Starling Bank, Onfido and Thought Machine- which underwent big-ticket funding rounds in the period.

A fifth of funding in the first half went to companies receiving between $5 and $20m, with 35 fintechs together raising over $376m.

In the period, 87 companies raised up to $5m.

Despite the sector taking a hit in the first half of the year, amid the coronavirus pandemic, fintech leaders and investors are optimistic about the industry’s future.

Charlotte Crosswell, CEO, Innovate Finance, said: “It’s encouraging to see investors are still backing fintechs, particularly those which are accelerating the digitalisation of society."

“But we need to highlight the significant drop in the amount of capital raised during the first half of the year. This is particularly impacting start-ups, with a recent survey showing that 75 per cent of smaller fintech firms are concerned about their next funding round."

 “Whilst early-stage conversations suggest capital is ready and waiting to be invested, there is still a lag in actual funding. It is yet to be seen if the rest of 2020 sees a pick up in activity, but in the meantime, we must help fintechs of all sizes source the capital they need to emerge from the pandemic, if our sector is to grow during the crisis”.

Jay Wilson, investment manager at Albion, VC, said: “Anecdotally it very much feels we are back firing on all cylinders, deal activity at all stages of the funnel is happening.”

“From my conversations with other investors I understand this is true for my peers too. To that extent Q2 2020 might get chalked up as a pause rather than a long-term inflection point in fintech funding activity." 

Husayn Kassai, CEO and co-founder of Onfido, said: “The proliferation of digitisation started well before COVID-19 but it has since accelerated even further.”

“Most infrastructure companies that support the digital transition, such as online communications, payments, identity and so on, have seen three years of transition happening within three months. We feel fortunate that we can help our partners transition into the new normal."